Momentum builds for back-to-back rate cuts

According to a survey by comparison website finder.com.au, 16 of the 37 economists and commentators it consulted said the Reserve Bank of Australia would cut rates at tomorrow’s monthly meeting.

The other 21 forecast that the board would leave the cash rate at a record-low 2.25 per cent.

The Reserve Bank took the market by surprise last month when it reduced the cash rate by 0.25 per cent, having left it at 2.5 per cent since August 2013.

Some economists think the RBA might further reduce rates to stimulate the economy and encourage a fall in the Australian dollar.

However, others believe the Reserve Bank will be reluctant to give more of a boost to the housing market and will want more time to assess the effect of last month’s rate cut.

ANZ chief economist Warren Hogan said the central bank historically makes back-to-back cuts when it begins a new interest rate cycle.

“They've signalled that the economic outlook is a little bit weaker than they have previously been expecting,” Mr Hogan said.

“They've factored in to their predictions further cuts to interest rates and so there's little reason to wait.”

St George Bank senior economist Janu Chan said the Reserve Bank would probably leave rates on hold this month.

“We think that the RBA will still want to give the economy more support, but it will prefer to wait at this meeting so it can assess developments, particularly the currency and housing markets,” she said.

ME Bank’s general manager of markets, John Caelli, said the Reserve Bank would definitely move in April if it does not cut rates tomorrow.

“Rate cuts typically operate in cycles – you can expect more. What’s driving the falls is lower-than-forecasted growth and a desire to keep currency low,” he said.